The failure of George Osborne’s economic experiment

26th July 2012

"George Osborne's economic experiment has failed. Future historians will struggle to explain how fashionable orthodoxy insisted briefly that it was bound to succeed."

That's the opening sentence of a brilliant op-ed piece written in today's Independent by Steve Richards in which he claims that the reason historians will be baffled is that what is obvious now was obvious then (referring to Osborne's calamitous spending review in the autumn of 2010).

"By the time of the 2010 election, the British economy had started to grow again, but the growth was fragile and dependent largely on government activity. No incoming government could rely on the immediate revival of the private sector when consumer confidence was low and made worse by overblown ministerial claims that the UK was as precarious as Greece. Businesses could not persuade suddenly neurotic banks to lend, and if they could, nearby markets in Europe were moribund…… yet Osborne implemented his austerity package on the basis that the private sector would somehow leap into life."

"Now the young Chancellor in his first ministerial job is increasingly isolated as unexpectedly dire figures confirm that the UK is in a deep, prolonged recession, bleaker than many of the countries in the eurozone that occasionally receive patronising lectures from British ministers about how they need to get their act together."

What should George Osborne do now?

Shadow chancellor Ed Balls said: "Britain now needs a change of direction and an alternative plan for jobs and growth. We need a bank bonus tax to fund jobs for young people and [build] thousands of affordable homes, a temporary VAT cut, tax breaks for small firms taking on extra workers and to genuinely bring forward infrastructure investment."

Meanwhile, Trevor Greetham of Fidelity Worldwide Investment says: "Consumers are unwilling or unable to borrow and corporates refuse to invest. In these circumstances it is up to the government to boost its own spending plans. Borrowing your way out of recession isn't as mad as it sounds."

Elsewhere, Ian Brinkley, the director of The Work Foundation contends that: "The collapse in construction output has been caused by the double shocks of a weak housing market and a collapse in government infrastructure spending. The government should take advantage of the UK's creditworthiness to reverse some of the cuts in public investment, especially those projects that could start straight away."

Talking Gibberish

For his part, the Chancellor defended his policies to get the economy back on track, instead blaming deep-rooted economic problems for the disappointing figures.

"We all know the country has deep-rooted economic problems and these disappointing figures confirm that. We're dealing with our debts at home and the debt crisis abroad. We've made progress over the last two years in cutting the deficit by 25% and businesses have created over 800,000 new jobs. But given what's happening in the world we need a relentless focus on the economy and recent announcements on infrastructure andA lending show that's exactly what we're doing."

Still, The Telegraph's political analyst Janet Daley took apart Osborne's observations about the state of the economy, saying that the Chancellor was talking nonsense.

"First, he suggested that this must be attributed to "deep-rooted problems" in the British economy. Ye-e-es, I think we can probably agree there. But what are they exactly, George?"

"But clarity did not seem to be the main aim here. George then went on to say that these ‘disappointing figures' confirmed that the government was ‘dealing with our debts at home and a debt crisis abroad.' What? You mean the proof that we are dealing with the crisis is that growth is falling even further? Does he mean that things will have to get worse before they can get better? Maybe. Who knows?"